International Financial Management Essay Example | Topics and Well Written Essays - 3000 words

International Financial Management - Essay Example The paper tells that Ð µhe world is now a global village – a phenomenon which can be interpreted as a fact that the advancement in communication and technology has integrated the various economies on the globe. A brief analysis of the current economic scenario of any country would reveal that it is, in one way or the other, dependent on the social and economical activities of the other countries. A downward plunge in the New York stock exchange is likely to send shockwaves all across the globe which can be felt in financial market as further as Far East countries. Recently, when the cherished credit rating of United State of America was downgraded to AA+ from AAA, it caused turmoil at a global stage especially in the European countries. All the giant economies such as China and India were badly affected. The economies are have become interlinked in this era due to the fact that now the firms are indulging in international trade and have started exploring markets outside their place of origin. Companies such as HSBC holdings, General Electric, ExxonMobil, British Petroleum and Toyota Motor have two things in common. First, they are the leading and biggest multinationals in the world and second, they all practice prudent international financial management. From a theoretical point of view, the firms engage in international trade in order to obtain comparative advantage which allows the firms to penetrate the foreign markets. Other popular explanations for the firms indulging in the international trade are the product cycle theory and imperfect market theory. There are several ways through which a firm can participate in international business. The most common methods are International Trade Licensing Franchising Joint Ventures Acquisition of companies Foreign subsidiary International Financial Markets In today’s economy, international business is carried out at international financial market. These markets can be categorized as foreign exchange mar ket, international money market, international credit market, international bond market and international stock market. Foreign Exchange market allows for the trading of different currencies at a rate which is determined based on several facts such as inflation and relative interest rates. Foreign exchange market is not a specific building or place; rather the companies indulge in foreign currency transaction through commercial banks and telecommunication networks. Foreign exchange dealers serve intermediaries between the companies who intend to enter into a foreign exchange transaction. In International Money Market, the trading of currency futures and options takes place. Globalization have abridged the distances and abridged the financial bridges between the countries. Multinationals can now obtain medium and long term loan from banks and financial institution located in other countries. Especially in Europe these loans are termed as euro credit loans and are transacted in the Eu ro Credit market. The international credit markets are now developing rapidly in Asia and South America. Recent global economic events have revealed